The EAT has held that pre-transfer dismissals by an administrator were not automatically unfair under TUPE and the purchaser of the insolvent business therefore had no liability for the redundancies. (Page and another v Lakeside Collection Ltd (trading as Lavender Hotels)).
This case concerned a struggling theme park and hotel operator which was placed into administration on 3 February 2009. The administrator dismissed the claimants on the same day. Prior to his appointment, the administrator had been in initial negotiations with Lakeside Collections Limited (Lakeside) about a possible sale but this fell through on 30 January 2009. Subsequently, Lakeside submitted a revised offer on 13 February 2009 and the sale completed on 10 March 2009.
The dismissed employees argued that their dismissals were by reason of the transfer to Lakeside and therefore automatically unfair. The administrator argued that the dismissals were simply redundancies resulting from a reduced need for managerial staff during the administration.
The EAT held that the dismissals were by reason of redundancy, but procedurally unfair. There was no evidence of complicity between the ultimate purchaser Lakeside and the administrator. Despite a purchaser waiting in the wings, the offer had been genuinely withdrawn at the time of the dismissals. Therefore the dismissals were not automatically unfair under Regulation 7(1) of TUPE. Accordingly, the insolvent company was liable for the dismissals rather than the purchaser.
Impact on practitioners
- On the facts of this case, the transferee was found genuinely to have withdrawn its offer at the time of the dismissals and there was no evidence of complicity with the administrator. The reason for the dismissals was that the senior managers were not required to run the business during the administration.
- The decision illustrates that pre-transfer dismissals will not necessarily be held to be automatically unfair under TUPE, even though the ultimate transferee is already in the picture.
- That said, it is worth noting that in the later case of Spaceright Europe Ltd v Baillavoine and another, the EAT decided that the pre-transfer dismissal of the Chief Executive was automatically unfair despite no purchaser having been identified. The dismissal was to enable a future purchaser to buy the business without a Chief Executive and did not relate to the conduct of the business as a going concern. Liability for the dismissal therefore passed to the purchaser.
- These two decisions show that, if the reason for a dismissal is connected with an actual or potential TUPE transfer, it will not matter whether, at the time of the dismissal a purchaser has been identified - the dismissal will be automatically unfair.
- Making employees redundant when negotiations are on-going is more likely to be held to be automatically unfair, even where there is no certainty that the negotiations will ultimately lead to a sale. While the compensation payable for unfair dismissal should, under current case law, be an ordinary unsecured claim (not an administration expense), administrators will not want to dilute the distributions that might be available to unsecured creditors more than is necessary.
- In all circumstances, administrators should carefully identify and document the reasons for redundancy or other dismissals. This is likely to be beneficial in negotiations with the purchaser (who is likely to reduce the consideration to take into account potential claims by the employees who have been made redundant).